In the video titled “The hidden forces in global economics: sending money home,” economist Dilip Ratha discusses the role played by remittances in spurring the growth of developing countries. According to Ratha, the annual total of remittances sent home by international immigrants is thrice the amount of foreign aid sent to developing countries.
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However, the impact of remittances on the economies of parent countries is stifled by poor labor and financial policies. A large percentage of the money is taken by international money transfer companies and labor agencies that find jobs for immigrants. Ratha recognizes that remittances play a vital role in improving the lives of recipients in developing countries. However, more could be done to ensure that the money creates more change and economic impact than it currently does.
I agree with Ratha’s recommendations that are aimed at increasing the impact of remittances on recipient countries. He notes that it is important to create a platform for sending remittances home, cut business ties between post offices and money transfer companies, and lower costs for small amounts. It is true that if the cost of sending money is reduced from the current average rate of 8%, remittances would have a greater impact on the economies of recipient countries.
It is necessary to lower the cost of sending remittances in order to increase the annual amount by recovering the excess that is used to cater for the exorbitant costs imposed by money transfer companies. Governments of developed countries need to consider the huge impact created by remittances on developing countries and consequently streamline their financial sectors to lower costs of money transfer.
I disagree with Ratha’s idea of downplaying the relationship between remittances and money laundering. He ignores the high risk that would be associated with reducing the cost of sending remittances around the globe. He focuses only on the positive aspect of lowering costs. However, low money transfer costs would have extensive consequences such as increased cases of money laundering.
On the other hand, lowering costs would make it easy for vigilante and terrorist groups to receive and send money to finance their activities. Terror financing and money laundering are the major challenges to lowering the costs of sending remittances. Governments should take the initiative to implement stringent financial and legal policies to discourage illegal money transfer activities. Ratha offers viable recommendations that could lower the costs of sending remittances.
However, he does not address how to deal with the potential risks of low money transfer charges. Before implementing the recommendations, it would be important for governments to address the issue of money laundering and terror financing. This would take the full participation of the recipient countries in association with international money transfer organizations.
The recommendations offered in the video could impact the GDP of recipient countries significantly. Implementation of the recommendations would reduce the cost of sending money and consequently increase the number of remittances. Increased remittances would imply that more money would be used to improve education, health, and other important economic sectors.
Ratha estimates that his recommendations would save an additional $30 billion that would be converted to remittances. This amount is larger than the amount donated by the United States as foreign aid to Africa. This implies that it would have a tremendous impact on the GDPs of recipient countries.